"Avril had her hand on his knee at one point," says an onlooker. "They looked super cozy together." The couple stayed close until leaving just after 2 a.m.

"There were others at the table but you could tell they only had eyes for each other," the onlooker continues. "They were whispering close the entire night, laughing and having a lot of fun."

A source close to Lavigne tells PEOPLE that the couple has been getting close for the past few weeks. "They've been friends for a long time and have worked together before," says the source.

Meanwhile Whibley, 29, has been spotted out in Las Vegas and L.A. with model/designer Hanna Beth Merjos. "He's enjoying being single for the first time in many years and he's been spending a lot of time working on a new album," says a pal of the Sum 41 rocker.